Page 10 - Euroil Week 20 2020

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Gazprom suffered a setback last week when German regulators denied its Nord Stream 2 project a waiver from EU energy rules.
State oil giant Rosneft swung to a net loss in the three-month period, as low prices caused it to book hefty write-downs and the devaluation of the Russian ruble inflated its foreign-denom- inated debts. Rosneft’s core earnings also plum- meted, even though its margins remain the envy of many of its foreign competitors.
Russia’s largest independent gas producer Novatek also posted a net loss and weaker core earnings in late April, and we are likely to see a similar picture with most of the country’s pro- ducers. The case was the same following the 2014 oil price crash.
The second quarter is set to be more gruel- ling for Rosneft, with oil prices showing limited recovery and OPEC+ production cuts coming into force.
Meanwhile national gas company Gazprom suffered a major setback last week when German regulators denied its Nord Stream 2 gas pipeline a waiver from EU energy rules. This will require Gazprom to ensure third-party access to the pipeline and potentially cede majority control of it. Under Russian law, Gazprom has exclu- sive rights to export Russian gas via pipeline and Moscow is unlikely to end this monopoly, through fear of creating competition between domestic suppliers. As such, the company will likely have to get creative in complying with EU legislation.
Belarus has been importing US and Saudi oil over the past month, as its spat with top supplier Russia continues. The market collapse means these oil supplies are now affordable, but this may not be the case for long as prices recover.
If you’d like to read more about the key events shaping the former Soviet Union’s oil and gas sector then please click here for NewsBase’s FSU Monitor.
Positive signs in LNG
Some positive signs for the LNG market are emerging, though the overall picture remains bleak. A growing number of US LNG cargoes are thought to be reaching China as the Asian country cautiously restarts its economy, having been the first to lock down earlier this year in response to the outbreak of the new coronavirus.
According to ClipperData, seven vessels delivered US LNG cargoes to China between April 20 and May 14. This marks the first time in over a year that US LNG has been shipped to China, and more cargoes will be on the way.
However, relations between the two countries remain fragile after they reached a preliminary Phase 1 trade deal in January that has already been severely undermined by COVID-19. Under the deal, China agreed to buy an addi- tional $52.4bn worth of energy products from the US, including crude oil and LNG. However, lockdown put the brakes on the country’s energy demand, and initially there were also tariff issues to resolve. Beijing recently started granting tar- iff waivers to some LNG importers as China emerged from lockdown, prompting shipments of the fuel from the US to resume.
However, China is still set to fall far short of its target for purchases of US energy. And US President Donald Trump recently threatened to pull out of the Phase 1 deal if China fails to meet its purchasing obligations.
This has led US industry groups to call for long-term contracts with US LNG terminals to be counted towards the Phase 1 targets.
Separately, China is continuing to expand its LNG import infrastructure. China’s National Petroleum and Natural Gas Pipeline Network Group (PipeChina) said in a May 16 statement that construction had started on a new LNG
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w w w . N E W S B A S E . c o m Week 20 21•May•2020